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HMRC have published a policy paper, 'Customer costs and benefits for the next phases of Making Tax Digital'. The paper assesses the costs involved with the next phases of transitioning across to Making Tax Digital (MTD) for both VAT and Self Assessment as well as ongoing annual costs.

Making Tax Digital (MTD) is currently a requirement for VAT registered businesses trading above the VAT threshold and new registrations. From April 2022 all VAT registered businesses move into MTD for VAT.

MTD will be extended to Income Tax Self Assessment, for businesses and landlords with a turnover of £10,000 or more, from April 2024. This will be further extended to cover general partnerships from April 2025.

The introduction of MTD ITSA has been Delayed by a year, as announced by the government, in recognition of the time and costs involved in transitioning to the new system. Feedback received by HMRC from stakeholders, businesses operating MTD for VAT and the software industry have meant that the cost projections for customers moving to MTD have increased from previous estimates.

The policy paper summarises the estimated customer costs as set out in the related Tax Information and Impact Note (TIIN). 

HMRC has used a number of assumptions to calculate these costs, which may or may not stand up to detailed scrutiny. Key assumptions include:

HMRC notes that the benefits of MTD are harder to quantify and may outweigh these costs. Over 1.5 million businesses have already transitioned to MTD for VAT. Their feedback and those obtained from independent research, has shown a number of positive impacts of MTD, including:

Useful guides on this topic

Making Tax Digital: Index and timeline:
When does Making Tax Digital (MTD) apply? What does Making Tax Digital really mean? How will it affect you? Does MTD mean quarterly reporting? Is my business exempted from Making Tax Digital?

Making Tax Digital: Survival guide (for the self-employed and landlords)
This is a freeview 'at a glance' guide for the many self-employed taxpayers, company owners and property landlords who are unaware of HM Revenue and Custom's radical plans to transform the tax online filing system. 

Making Tax Digital: Pricing for Accountants
How much can you charge? How much should you charge?

Making Tax Digital: VAT
What is Making Tax Digital (MTD) for VAT? What is VAT 'functional compatible' software? What do you need to report their VAT? Are there penalties for making mistakes? 

External links

Policy Paper: Customer costs and benefits for the next phases of Making Tax Digital

TIIN: Extension of Making Tax Digital for Income Tax Self-Assessment to Businesses and Landlords


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